Issue: New Year's Day is a paid holiday at your company, with employees receiving eight hours of straight-time pay. John, who is paid $10 an hour, has that day off but works a total of 45 hours during that week. How is John's overtime pay calculated? What if he works five of those 45 hours on the holiday?
Answer: If John does not work on New Year’s Day, then the eight hours of holiday pay ($80) may be excluded when the company calculates the regular rate for overtime-pay purposes. Consequently, the regular rate remains at $10 an hour. However, the $80 for the holiday may not be credited against overtime compensation that is due. For the week, John must receive $555 ($80 holiday pay plus $450 straight-time plus $25 FLSA overtime pay).
If John works on New Year’s Day, the overtime-pay calculation depends upon how your company pays for holiday work. If your company excludes the idle-time portion of holiday pay from the regular rate, then it must pay at least double time; in other words, straight-time for idle time plus straight-time for the work.
It would be unreasonable to assume that an employee would work for less than the straight-time rate, according to the U.S. Department of Labor’s Wage and Hour Division. John again must be paid $555 for the week ($80 holiday pay plus $450 straight-time pay plus $25 FLSA overtime pay). If John received holiday pay plus time-and-one-half for holiday hours worked, the additional half time could be credited against any FLSA obligation.
If your company pays only time-and-one-half for holiday work, the regular rate changes unless John waives the idle-time pay. Thus, if John works five hours on New Year’s Day and 40 hours the rest of the week, the correct regular rate for the week is $10.56 ($450 straight-time plus $25 holiday premium / 45 hours). None of the pay for the holiday — not even the half-time premium — may be excluded from the regular rate or credited against FLSA-required overtime. The total weekly pay should be $527.80.
If the employment agreement provides that employees who work on a holiday waive idle-time pay, then the weekly pay would be only $475 ($450 straight-time plus $25 holiday premium). The half-time holiday premium may be credited against required FLSA overtime pay.
Source: CCH® Wage & Hour Compliance Guide, Fall 2002 Newsletter.